This thesis describes the development of a sensorless control method for a surface mounted permanent magnet synchronous machine drive system. The saturation saliency in the machine is tracked from the stator current transient response to the fundamental space vector PWM (pulse width modulation) excitation. The rotor position and speed signals are obtained from measurements of the stator current derivative during the voltage vectors contained in the normal fundamental PWM sequence. In principle, this scheme can work over a wide speed range. However, the accuracy of the current derivative-measurements made during narrow voltage vectors reduces. This is because high frequency current oscillations exist after each vector switching instant, and these take a finite time to die down. Therefore, in this thesis, vector extension and compensation schemes are proposed which ensure correct current derivative measurements are made, even during narrow voltage vectors, so that any induced additional current distortion is kept to a minimum. The causes of the high frequency switching oscillations in the AC drive system are investigated and several approaches are developed to reduce the impact of these oscillations. These include the development of a novel modification to the IGBT gate drive circuit to reduce the requirement for PWM vector extension. Further improvements are made by modifications to the current derivative sensor design together with their associated signal processing circuits. In order to eliminate other harmonic disturbances and the high frequency noise appearing in the estimated position signals, an adaptive disturbance identifier and a tracking observer are incorporated to improve the position and speed signals. Experimental results show that the final sensorless control system can achieve excellent speed and position control performance.